Corn inventories are shrinking, but so is demand

Focus on Futures: Corn

Corn demand has been very weak. The most striking evidence can be found in the U.S. export market. Even as prices have fallen from mid-August right through the harvest period, nobody has been buying.

The USDA finally stopped slashing its forecast for 2012-13 U.S. exports in the November crop report, maintaining the 29.2-million-tonne October forecast, which would amount to only 74% of 2011-12 final sales of 39.2 million tonnes. A glance at the progress of sales, however, shows that even this estimate – for the moment anyway – seems wildly optimistic.

Since the Sept. 1 start of the 2012-13 marketing year, weekly commitments have averaged an absolutely anemic 135,000 tonnes, compared with 885,000 tonnes last year during the same period. Commitments to-date, which include outstanding unshipped sales from the previous marketing year, stand at 11.2 million tonnes, only 52% of the 21.5 million tonnes registered last year at this juncture of the season.

The situation, though, is not quite as bleak as it appears. Eastern European and South American origins have been available at discounts to U.S. prices. With prices trading at record levels, foreign buyers have been shopping for bargains, meeting their needs outside the U.S.

The aggressive buying from U.S. competitors, however, has its limitations. The discounts have disappeared and, more significantly – particularly in Brazil and Argentina – supplies available for export have been run down. Eventually we should start to see the return of traditional U.S. customers.

There are other factors that will ultimately spur demand for U.S. corn. Since 2008-09, EU corn imports have averaged about 3.3 million tonnes per annum. However, the estimates for 2012-13 EU corn crops have fallen precipitously over the past few months – from a high of 65 million tonnes in the summer, to the current estimate of 54.65 million tonnes. The USDA has tried to keep pace, with commensurate increases in the amount the member countries will have to import. The November crop report raised the import estimate by 1.5 million tonnes from the October estimate, to 6.5 million tonnes. But that estimate is seriously outdated. Several analysts have raised their forecasts for EU to imports to as high as 12 million tonnes.